- The days corn, wheat and soybean markets started out under pressure with fresh long liquidation from the specs, many of whom have been on the wrong side of the market since the recent rally began. Additionally, improved Central US weather and ongoing lacklustre export demand has seen the “wet weather bulls” pushed to the sidelines. The speed of the decline has surprised many, and has potentially left some of the reluctant bulls holding onto losing positions, which if unwound in coming days may well see the decline continue – possibly even increasing the pace of decline. As ever, the spectre of a “Turnaround Tuesday” will hover over tomorrow’s markets.
- We have also keep in mind that we are approaching yet another month end, which is always renowned for a degree of position squaring and cash withdrawals and this could well impact the markets as the week progresses.
- In China the Dalian grain futures markets closed sharply lower to start the week with corn futures posting the biggest losses with nearby futures shedding $0.17/bu and back months losing as much as $0.32/bu as rumours continue to circulate that China may well alter the minimum price farm programme and permit domestic corn prices to fluctuate in line with world levels. Soybean meal futures also posted sharp losses on slowing demand and oversupply of soybeans at ports. To make matters worse, if that was possible, the Shanghai stock exchange took an 8.5% dive to start the week on the back of economic worries and renewed investor selling. Crude oil prices continued to decline lending an additional negative tone.
- As the day progressed one commentator described Chicago markets as having received a “bloody nose” as the losses continued. Biggest losses have been seen in summer corn and soybeans where the funds held their longest positions and the rush for the exit door was greatest. Looking back, investors have seen a whipsaw action having been run out of their previous shorts into longs (wet weather June rally) only to be whipped the other way on the current decline. A summer break cannot come too soon for many participants.
- The Brazilian real fell to fresh lows against the US$ early today but stabilised as the day progressed but there is a belief that 3.5 is the ultimate target in coming weeks. Bear in mind that the Real has fallen around 25% since the start of the year whilst soybeans have only declined around 6%!
- We await crop ratings later tonight, after the close, and there is a wide expectation for stabilisation or even and improvement as the weather has been more kind than in recent weeks. If we see a 2-3% improvement in corn and soybean ratings, as some are suggesting, it is possible that the price decline could well see follow through selling again tomorrow. As previously mentioned out inclination is for something of a “Turnaround Tuesday” as some profit taking emerges after today’s sharp losses.
- In summary, the bulls have taken something of a beating today as it feels very likely that the season highs were made in late June and early July, and follow through to the upside has eluded them. Unless we see a dramatic weather shift in the US it feels very much as if any further rally should be viewed as a selling opportunity. Continued US$ strength and poor export demand appear the probable course in coming weeks, and maybe months, which will not pressure our views on suggested price direction.
- In Europe the weaker CBOT markets and a stronger €uro took Matif wheat to a five week low, which has also had the added benefit of reducing the uber-competitive Russian prices as Black Sea levels remained pretty much unchanged. For a comparison, since last week’s GASC tender, Chicago wheat has shed $0.30, Matif €8 and Black Sea is all but unchanged! The European crop unit, MARS reduced EU soft wheat yield estimates to 5.8 mt/ha from 5.85 and compared to last year’s 6.14 whilst corn was lowered to 6.71 mt/ha from 7.22 month on month and 8.07 last year.